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An Administration proposal, recently introduced in Congress as the State
and Local Housing Flexibility Act, would make fundamental changes to two of
the nations primary low-income housing assistance programs  the housing
choice voucher program and public housing.[1]
The proposal would lay the groundwork for future cuts in funding for housing
assistance and leave the more than 3 million low-income households assisted by
these programs vulnerable to sharp rent increases and other harmful changes.

The Administrations plan contains three parts. It would:

Replace the existing housing voucher program
with a block grant, called the Flexible Voucher Program. Under the
proposed block grant, nearly every current protection for low-income
families in the voucher program would be weakened or eliminated, and housing
agencies would receive a set amount of funding each year with no adjustment
for changes in actual voucher costs. These changes would increase the
chances that the future reductions in housing assistance funding called for
in the Administrations budget will be carried out, and would leave
low-income households vulnerable to harsh cuts in housing assistance.

Allow local housing agencies to raise rent
burdens of low-income families in public housing to virtually any level they
choose. Funding provided to local housing agencies for public housing has
been cut repeatedly in recent years, and the Administration has proposed
further cuts in 2006 and beyond. These cuts would place pressure on
agencies to use the flexibility the Administrations proposal would provide
to shift costs to low-income tenants, in the form of higher rents.

Grant HUD authority to waive nearly all of
the provisions of the laws that govern the public housing and voucher
programs. This authority  which is framed as an expansion of the
existing Moving-to-Work demonstration program, but is similar to the
superwaiver authority the Administration has proposed to create for public
housing and an array of other low-income programs  would allow HUD and
state and local agencies to overturn Congressional decisions with no input
from Congress and no advance input from the local community. HUD could
use this authority to make sweeping changes in the housing assistance
programs, which could include weakening protections for low-income families
in public housing and permitting state and local housing agencies to use
public housing and voucher funds for purposes other than those Congress
intended.

While the Administration has proposed these three changes as a package, it
is important to note that any one of the three would open the door to
fundamental, damaging changes in the housing assistance programs. For
example, if Congress granted HUD superwaiver authority but rejected the
voucher block grant and public housing rent proposals, it would allow the
Department a back door means by which it could make many of the changes
contained in the other two proposals, despite a Congressional decision to
reject them.

Block Grant Would Pave Way for Funding
Cuts in Future Years

The Administrations block grant proposal is not accompanied by a proposal
to cut voucher funding immediately. This represents a significant departure
from the proposal that the Administration submitted last year, which would
have cut funding by $1.6 billion in 2005, the same year that a voucher block
grant was to be implemented.

The Administration does, however, plan for large cuts to housing assistance
funding in future years. Administration budget documents propose a funding
level for housing assistance programs in 2010 that is 11 percent below the
funding level the Administration proposes for those programs in 2006, adjusted
for inflation. If this funding were distributed among the various housing
assistance programs in the same proportion as the Administration proposes to
distribute funding among these programs in 2006 (which would maintain the
relative priorities the Administration has set among the programs), the
funding level for the voucher program would fall about $2.9 billion short of
the amount needed to cover the vouchers funded in 2005.[2]

It is by no means inevitable, however,
that the large cuts in housing assistance contained in the Administrations
budget plans will actually occur. Congress rejected large cuts to voucher
funding that the Administration proposed for fiscal years 2004 and 2005. Even
if Congress adheres generally to the budget policy outlined by the
Administration, it is quite possible that Congress will adopt appropriations
bills in future years that do not include major reductions in housing
assistance funding.

The odds that Congress will adopt cuts of the depth proposed by the
Administration, however, will be significantly higher if the Administrations
block grant proposal is adopted first. This is the case for several reasons:

A block grant would enable Congress to
freeze or reduce funding for housing assistance programs without having to
bear responsibility for making painful cuts; the tough choices about how and
when to cut in response to federal funding reductions would be passed down
to state and local agencies, with Congress insulating itself from both the
hard decisions and much of the ensuing criticism.

The proposed block grant also would
completely eliminate funding adjustments in response to changes in actual
voucher costs that result from changes in tenant incomes or other factors.

Finally, the block grant would blur the
distinction between the voucher program and other housing assistance
programs, and thereby weaken the rationale for voucher funding.

State and
Local Housing Agencies Would Bear Responsibility for Determining How Funding
Cuts Are Carried Out

Under the Administrations proposal, it would
no longer be possible for Congress to determine the amount of funding required
to provide housing assistance to a particular number of families. As a
result, it would be far more difficult for the public to hold Congress
accountable for cuts in housing assistance stemming from future funding
reductions.

Currently, it is possible to estimate the amount of funding needed to
support the vouchers that Congress has authorized. This is the case because
housing agencies are required to provide assistance to low income families in
accordance with certain federal standards, including rules that target 75
percent of vouchers on families with incomes below 30 percent of the local
area median, limit the amount of rent a voucher holder can be required to pay
to 30 percent of the familys income, and require that local caps on the
amount of rent a voucher can cover be set high enough to enable voucher
holders to afford housing units outside the poorest neighborhoods. Local
housing agencies have some flexibility to set the parameters of their
programs, but only within the framework that these federal standards set.
Congress established these standards over the years because it considered them
necessary to ensure that the voucher program provides effective assistance to
the neediest families. Often the standards reflect lessons learned from other
federal housing programs, which did not contain similar standards and for one
reason or another proved ineffective at providing the type of assistance
Congress intended.

If Congress does not provide sufficient funding to support all existing
vouchers in accordance with these standards, then state and local agencies
will be required to reduce the number of families they assist, and the
consequences of the Congressional decision will be apparent to the public. In
recent years, the costs of voucher assistance rose substantially, primarily
because of earlier Congressional decisions to expand the number of vouchers
and a period of unusually rapid growth in the gap between market rents and the
incomes of low-income families. (Recent HUD and Treasury data indicate that
growth in voucher costs is now slowing markedly, as the factors that drove
that growth have eased.) Despite a tight fiscal environment and
Administration proposals to cut voucher funding in 2004 and 2005, Congress
proved reluctant to reduce funding below the level needed to provide
assistance under the standards it had established.

Under the Administrations block grant proposal, by contrast, the federal
standards regarding tenant rent burdens and voucher subsidy caps essentially
would be eliminated and the income targeting standard would be eased to allow
agencies to issue 90 percent of their vouchers to households with incomes
below 60 percent of the area median income.[3]
As a result, agencies would be permitted, although not directly required, to
reduce the average cost of vouchers through steps such as serving higher
income families (which require smaller subsidies and are consequently cheaper
to serve), raising the rent burdens of low-income families, or setting subsidy
caps at levels that force poor households to use vouchers in extremely
low-rent neighborhoods, which tend to have high crime rates and poor schools.
It would therefore be possible for Congress and the Administration to assert
accurately that state and local agencies could serve the same number of
families with less money, and it would be difficult to hold Congress
accountable for the harmful actions that state and local agencies would have
to take to cut spending per voucher (or to reduce the number of families
assisted if agencies chose to maintain the current federal standards).

The notion that elimination of federal standards in the voucher program
could be used to justify funding cuts is not hypothetical. It is precisely
what the Administration did last year, when it proposed that funding cuts
occur at the same time as a new block grant was implemented. In the period
after that proposal (which, aside from the funding cuts, was quite similar to
this years block grant proposal) was submitted, the Administration argued
repeatedly and explicitly that the block grant would serve as a means to
reduce the funding needs of the voucher program.

A HUD paper, for example, described how the block grant would enable
agencies to take a series of actions that would reduce spending by $1.8
billion in FY 2005 alone.[4]
Some of the savings that HUD estimated were exaggerated, and several of the
actions it pointed to  such as shifting vouchers away from the poorest
families and reducing the amount of rent a voucher can cover  would have cut
assistance to needy families significantly, but these facts would only have
become apparent as state and local agencies went through the painful process
of choosing how to implement the cuts.

The experience of the Public Housing Operating Fund underscores the point
that it is easier for Congress to freeze or to cut funding when the
consequences of the reduction are not readily apparent. Congress frequently
provides less money for the Operating Fund than the funds formula calls for,
even though the formula is designed to set funding at a level that is adequate
(in combination with rental income) to cover the day-to-day costs of running
public housing. In under-funding the Operating Fund, Congress leaves many
local housing agencies no choice but to reduce costs by cutting back on
activities such as maintenance or security. When a roof leaks or the crime
rate rises, it is the local housing agency  rather than Congress  that
appears to be responsible. The Administrations voucher proposal would shift
apparent responsibility for voucher cuts to housing agencies in a similar
manner.

Link Between
Funding and Actual Voucher Costs Would Be Severed

In addition to eliminating and weakening
federal standards in a manner that would make it impossible to determine the
amount of funding needed to support a certain number of vouchers, the
Administrations proposal also would end the use of actual voucher costs to
determine funding levels for individual state and local housing agencies.
While these two changes (the evisceration of federal standards and the
elimination of the link between funding and actual costs) are related, each on
its own would serve to increase the likelihood that funding would be cut
sharply in the future.

Under the proposed Flexible Voucher Program, each housing agency would be
provided with a set amount of funding each year, with no adjustment for
changes in the number of the vouchers administered by the agency that are in
use or in the cost of those vouchers. This represents a major departure from
the manner in which vouchers have been funded previously. Traditionally,
housing agencies have received funding based on the actual cost of the
vouchers they administered, so that if costs rose because rents surged in the
local housing market or because the incomes of voucher holders fell, the
agency would still receive sufficient funding to cover the cost of the
vouchers. In 2004, HUD modified this system somewhat by distributing funding
based on the actual cost of an agencys vouchers in the previous year, plus an
adjustment based on regional rent inflation factors, and Congress enacted a
similar system for 2005. The regional rent inflation factors cover areas as
large as eight states and ignore changes in tenant incomes entirely, so they
are a poor proxy for trends in voucher costs for a particular states or local
agency and often result in funding levels for agencies that are too high or
too low. But because actual costs in the previous year are used as the base
for setting funding levels, changes in actual costs can eventually be
reflected in agency funding levels, albeit a year after the fact.

Under the Administrations new proposal, however, changes in actual voucher
costs or in the number of an agencys vouchers in use would have no impact on
the agencys funding level, even in the year after the changes occur. Funding
for individual agencies during at least the first two years after the block
grant is enacted would be based on the amount of funding an agency received in
2005 adjusted for inflation. After that, funding would be based on a formula
to be developed by HUD.

Without a cost-based adjustment in funding levels for individual state and
local housing agencies, Congress is unlikely to adjust overall funding for the
voucher program based on changes in voucher costs. Consequently, voucher
funding would likely fail to keep pace with trends in housing costs and in the
incomes of low-income families. Funding would likely fall further behind the
amount needed to maintain current levels of assistance with each passing year.

State and Local
Flexibility  or HUD Flexibility?

The title of the Administrations bill 
the State and Local Housing Flexibility Act  suggests that it shifts
authority over the housing assistance programs to state and local
housing agencies. On their face many of the bills provisions in fact
would provide those agencies with broadly expanded discretion. But the
bill also would grant HUD extraordinary power over state and local
agencies. HUD could, if it chose, use that power to pressure housing
agencies to run their programs according to the priorities of the
Administration in power, rather than the priorities of the local
community or state.

As is discussed elsewhere in this
analysis, the Administration is proposing to grant HUD the authority to
waive almost any provision of the main law governing public housing and
the voucher program. In addition, HUD would receive extensive new
powers to reward or punish agencies under the provisions of the proposed
Flexible Voucher Program block grant. HUD would set the block grant
funding formula after the program has been in place for two years, and
would have complete discretion to change that formula in later years.
In addition, the proposal allows HUD to pick standards for evaluating
the performance of state and local housing agencies in administering the
voucher program and to punish agencies it deems out of compliance with
those standards. There would be no constraints on HUDs discretion to
set performance standards, so the standards could be designed to give
high marks to agencies that advance certain policy priorities  rather
than give high marks to the agencies that simply manage the program
efficiently.

HUD also would be free to set the
standards as high or as low as it wished. If HUD set the standards at a
level that many agencies could not realistically meet, large numbers of
agencies could be determined to be out of compliance. Once an agency
has been determined to be failing to meet any one of HUDs standards,
HUD would have virtually unlimited authority to reduce funding for the
agency under the voucher program or any other HUD program or to impose
civil fines on the agency. HUD also would be free to take away
administration of the voucher program from any failing agency, and to
divert the funds allocated to that agency to a contract with a private
company, a faith-based or community-based organization, or any other
entity to administer the agencys vouchers. HUD could pick the entity
to receive the failing agencys funds behind closed doors and would
not be required to allow other entities to compete for the funds or even
to disclose the criteria it used to select the entity that would receive
the funds.

The income targeting rule that the Administration has proposed for the new
voucher block grant (requiring that 90 percent of vouchers go to households
with incomes below 90 percent of the area median income) is identical to the
rule currently used in the HOME housing block grant. If the new block grant
the Administration is proposing is enacted, there will be two block grants
under which funds can be used for many of the same purposes: homeownership
assistance, tenant-based rental assistance, and housing construction or
rehabilitation projects (through project-basing of vouchers in the case of
the voucher block grant).[5]

It is quite possible that in future years, this or a subsequent
Administration could seek to justify substantial cuts in housing assistance
funding by arguing that it is redundant to have two block grant programs
providing similar assistance to the same population. Such an Administration
could propose to consolidate the two programs into a single housing assistance
block grant, funded at a lower level than the two block grants combined.

This is the approach that the Administration has taken this year with
community and economic development programs. In its fiscal year 2006 budget,
the Administration proposed to merge the Community Development Block Grant
with 17 other programs (of which CDBG is the largest) into a single block
grant with an annual budget at least $1.6 billion  or 30 percent  below the
current funding level of the affected programs.

If the level of program funding is reduced over time by
an amount close to the magnitude called for in the Administrations budget
plans, state and local housing agencies will be forced to reduce expenditures
under their voucher programs sharply. The only way in which agencies could
achieve large cuts would be to scale back assistance for low-income families.

As noted above, the Administrations proposal would
eliminate a number of federal standards that currently protect low-income
families. This added flexibility would expand the menu of steps that
agencies could take to cut assistance but would not alter the fact that
agencies would have no choice but to scale back assistance to needy families.
Most cuts would need to be carried out through one or more of four types of
measures: reducing the number of families assisted; raising rent burdens on
low-income families; limiting the ability of families with vouchers to move
out of high-crime, high-unemployment areas; and shifting assistance away from
families with the lowest incomes.

The Elderly and People
with Disabilities, Including Those with Special
"Enhanced Vouchers," Would Have Only Temporary Protection Against Cuts

The Administrations Flexible Voucher
Proposal delays the effect of increases in rent burdens and other policy
changes until January 1, 2009 for elderly people and people with
disabilities using vouchers at the time the law is passed. After that
date, there would be little protection for these tenants. Housing
agencies would be required to ensure that the needs of these
households are addressed, but this vague requirement would not protect
the elderly and people with disabilities from increased rent burdens and
other harmful changes.

Elderly people and people with
disabilities who begin using vouchers after the bill is enacted would be
vulnerable to cuts in assistance at any time. This would include
households that are due to lose assistance under other federal housing
programs and have been promised a voucher to prevent them from being
forced to leave their homes.

Households that receive special enhanced
vouchers would be among those vulnerable to cuts. When owners of
federally subsidized apartment buildings decide to stop accepting
federal project-based subsidies and to increase the rents for units in
the buildings, low-income tenants who reside in these buildings can face
displacement from their homes. To prevent that from occurring, Congress
established rules under which tenants in these buildings can receive an
enhanced voucher. Under the rules that govern enhanced vouchers, the
rent levels that the vouchers can cover may be set at the levels charged
for comparable units, even if such rent levels exceed the rental charges
that vouchers normally can cover.

The Administrations new proposal would
repeal the carefully designed rules that allow these vouchers to cover
rent levels higher than the levels that vouchers otherwise can cover.
Under the Administrations proposal, the rules requiring housing
agencies to allow these vouchers to cover high rent levels would be
abolished after a family has had an enhanced voucher for 12 months. In
addition, rules that require owners to continue to accept these tenants
vouchers would be eliminated.

Roughly 100,000 households, most of them
senior citizens and people with disabilities, now receive higher rent
subsidy assistance through these enhanced vouchers. If their subsidies
are substantially reduced or if the owner decides to stop accepting
their vouchers altogether, many of these households are likely to face
substantial hardship. Some are likely to lose their homes because they
can no longer pay the rent.

Rent Burdens on Low-Income Families
Could Be Raised

Since the 1980s, the amount that recipients of federal housing subsidies
can be required to pay for rent and utilities has been capped at 30 percent of
the familys income. This requirement, often referred to as the Brooke rule
after former Republican Senator Edward Brooke of Massachusetts, is designed to
ensure that families have sufficient income remaining after they pay for rent
to cover other basic needs such as food, clothing, and transportation.

The Administrations proposal would eliminate the Brooke rule rent cap for
both the voucher program and public housing.[6]
Housing agencies would be permitted to set rents in virtually any manner they
choose, including establishing flat rents that bear no relation to a familys
income. In order to reduce their spending in the face of funding cuts,
agencies would face substantial pressure to raise the rent burdens of
low-income households.[7]
Such increases often would be difficult for families in the voucher program
and public housing to bear. Most of these families have incomes below the
poverty line. To pay more of their income for rent they would have to divert
scarce resources from other basic needs, such as food, transportation, or
clothing for school or work.

If rent burdens are increased sharply above 30 percent of income or set at
a flat level that is unrelated to a households income, some families with the
lowest incomes might not be able afford housing at all. As a result, rent
increases could have the effect of rendering vouchers ineffective as a form of
assistance for the most destitute families. Some current voucher holders
could consequently have to leave their homes and double up in overcrowded
apartments or move to substandard housing. In some cases, families might be
forced to resort to living in shelters or on the streets.

Housing Choice Could Be Restricted

Housing agencies could also reduce costs by lowering the
maximum amount of rent that a voucher can cover, which is referred to as the
payment standard. If a family rents a unit with a rental charge that
exceeds the maximum rent a voucher can cover, the family must pay all of the
extra cost. Currently, housing agencies are required, in most cases, to set
maximum rents within 10 percent of the Fair Market Rent. The Fair Market
Rent for each local area is the amount estimated to be needed to rent a modest
housing unit in that area, as determined by HUD each year based on rental
market data. Under the proposed legislation, housing agencies could set their
payment standard essentially at any level.

If a housing agency reduced its payment standard
significantly below the Fair Market Rent in response to reductions in federal
funding, families would be forced either to pay more themselves in rent (which
would have the same effect as if housing agencies raised rent burdens directly
by requiring families to pay more than 30 percent of their income) or to move
to a housing unit with a rent at or below the new, reduced payment
standard. In many parts of the country, very low-cost units are located
disproportionately in neighborhoods with higher concentrations of poverty,
higher rates of crime, poorer schools, and fewer job opportunities. If
housing agencies reduce the maximum voucher payment significantly, the voucher
program will become less effective in enabling families to live in
neighborhoods with less concentrated poverty, lower crime, better schools, and
more jobs.

The Administrations proposal would also allow agencies
to restrict the housing choices available to low-income families by preventing
them from using a voucher to move from the jurisdiction of one housing agency
to the jurisdiction of another. Under current law, voucher holders are
permitted to move anywhere in the country where there is a voucher program.
This right to move beyond the jurisdiction of the agency that issued the
voucher, referred to as portability, is a crucial underpinning of the
voucher programs effectiveness. For example, a worker who is laid off but
finds a new job in a neighboring county can use his or her voucher to move to
an apartment within commuting distance of the new employer. Similarly,
portability can enable a victim of domestic violence to flee an abuser or
allow an elderly person whose need for assistance has increased to move closer
to family members who can provide support.

The Administration is proposing to curtail voucher
portability sharply. Voucher holders would not be permitted to use their
vouchers to move across state lines, except in cases where a region includes
more than one state.[8]
This in itself is a major restriction, since the employment opportunities and
family ties that drive a low-income family to move will not always be located
within state or regional boundaries. But even within states and regions,
portability would be permitted only if both the agency that originally issued
the voucher and the agency with jurisdiction over the voucher holders
destination assented.

Housing agencies may block cross-jurisdiction moves
because of funding constraints. If a household moves from the jurisdiction of
one housing agency to the jurisdiction of another, the cost of the voucher
must be covered by one of the two agencies. Both may be reluctant to use
limited resources for this purpose. The destination agency may prefer to use
its funds to grant vouchers to households on its own waiting list, while the
agency that originally issued the voucher may be reluctant to provide on-going
assistance to a family living outside its jurisdiction. When a family wishes
to move from an area with very low rents to an area with higher rents (for
example, from a high-poverty rural or inner-city area to a suburban area with
a stronger economy), the agency that originally issued the voucher will face
higher costs if it continues to pay for the voucher and consequently may be
under especially strong fiscal pressure to deny the move.

Agencies may also refuse to allow portability for
non-financial reasons. In some suburban areas, for example, there is
significant resentment among residents against families who move to the area
from nearby central city areas. Often, these suburban areas are predominantly
white, while the central city areas have largely minority populations. Under
the Administrations proposal, suburban housing agencies without offering any
explanation  could ban families with vouchers issued by the central city
housing agency from using the voucher to move to the suburban community.[9]

Vouchers Could Be Shifted from the Poorest Families to Those with Somewhat
Higher Incomes

The Administrations proposal would replace
the current requirement that three-quarters of families entering the voucher
program be extremely low-income households  that is, those with incomes
below 30 percent of the local area median income. Nationally, 30 percent of
median income is about $17,000 a year for a family of four, close to the
poverty line.

Instead, 90 percent of vouchers would be
required to go to households with incomes below 60 percent of the area
median income, nationally about $35,000 for a family of four. As a result,
agencies would be permitted to reduce sharply the proportion of their vouchers
that would go to households with incomes below 30 percent of the local area
median income or even to cease serving those households altogether.

Because vouchers make up the difference
between the rent for a modestly priced apartment and 30 percent of a familys
income, poorer families receive larger subsidies, on average. Shifting more
vouchers to families at higher income levels would enable housing agencies to
spread an inadequate amount of funding among a larger number of families than
would otherwise be served. In some areas, there also could be political
pressures on state and local agencies to use the flexibility the block grant
would provide them to shift vouchers from poor families to families at higher
income levels.

The extremely low-income households that could be harshly affected
consist primarily of working-poor families, poor elderly households, and poor
people with disabilities. HUD data show that in 1999, one million extremely
low-income renter households with housing problems were elderly. Another
370,000 were individuals with disabilities severe enough to qualify for the
Supplemental Security Income program, which has a stringent disability test
and pays benefits equal to about 75 percent of the poverty line. The Census
data also show that in 1999, more than half of the extremely low-income
renter households who either lived in substandard housing or paid more than
half of their income for rent were working households (i.e., households whose
income came primarily or entirely from earnings).[10]

The existing targeting requirement was
established as part of major housing assistance reforms enacted in 1998. In
carefully-crafted bipartisan legislation, Congress opted to allow the two
large project-based housing assistance programs  public housing and the
project-based Section 8 program  to limit to a much smaller percentage the
share of newly admitted households that must be extremely low-income
households. This decision was made out of concern that concentrating large
numbers of very poor people in housing developments would have a negative
impact on a range of social outcomes. To balance the decision to serve fewer
of the neediest families through the project-based programs, Congress
required that 75 percent of families entering the voucher program be
extremely low-income families. Since families with vouchers are scattered
in private rental housing and are not concentrated in particular
projects or developments, concerns about concentrating too many poor families
in particular projects or developments do not apply to vouchers.

Number of
Families Assisted Could Be Reduced

Some housing agencies may opt to leave the existing program standards
largely in place so that they can continue to assist the lowest-income
households without imposing high rent burdens on those families or limiting
their housing choices. To maintain the current standards in the face of
funding cuts, however, agencies could have to reduce the number of families
that they assist. If the entire cut that could result from the
Administrations budget plans for 2010 were carried out in this manner,
370,000 fewer families would receive assistance nationally than are likely to
be assisted this year.[11]
The number of vouchers already falls far short of the number of households in
need of assistance. Only between one in three and one in four of the
households eligible for vouchers currently receive any form of federal housing
assistance. In many areas, there are long and growing waiting lists for
vouchers.

The effects of reductions in the number of vouchers would extend beyond the
families who lose their vouchers or are stuck on waiting lists for longer
periods because fewer vouchers are available. Major reductions in the number
of voucher tenants also could reduce demand for rental units and raise vacancy
rates, which already are at high levels in a number of areas across the
country. Such higher vacancy rates could be harmful both to neighborhoods in
which substantial numbers of voucher holders live and to landlords who rent
units to families with vouchers. Most landlords who rent to voucher holders
own only a small number of rental units.

Proposal Threatens
Business Confidence in Voucher Program

The housing voucher program represents a
partnership between the private sector, which builds and maintains the
housing occupied by voucher holders, and the public sector, which
provides a subsidy to make the housing affordable to low-income
families. For 30 years, this partnership has worked well, delivering
decent quality housing to millions of low-income families at costs that,
over the long term, are lower than those of most other forms of
assistance. The Administrations proposal, however, would undercut this
partnership in several ways:

Breaking the link between funding and
market realities. By severing the link between voucher funding and
actual voucher costs (which are largely driven by market rents and the
incomes of voucher holders), the Administrations proposal would
increase the chances that funding will not match the amount that a
local agency needs to cover the costs of its vouchers  and that
agencies will consequently need to scale back their programs. Such
cuts would be a certainty if, as appears likely, the proposal set the
stage for large reductions in voucher funding over time. If
landlords, developers, and lenders are not confident there will be
sufficient funding to cover a vouchers costs in the future, landlords
may be less willing to rent units to voucher holders, developers may
have greater difficulty using project-based vouchers to support
construction or rehabilitation of affordable housing, and lenders may
be less likely to approve mortgages for first-time homebuyers that are
backed in part by voucher payments.

Replacing national standards with
local and HUD rules that could change dramatically from year-to-year.
The basic rules of the voucher program (such as the maximum amount of
rent a voucher can cover and the share of the rent that a family is
required to pay) have evolved over time, but changes have generally
been gradual and major changes have received thorough deliberation by
Congress. In addition, the rules are largely consistent from one
geographic area to another, an important factor for large property
owners, developers, and mortgage lenders that may operate in the
jurisdictions of numerous housing agencies. Under the
Administrations plan, by contrast, each of the nearly 2,500 state and
local housing agencies would set its own rules. And state and local
agencies  or HUD, exercising the broad flexibility the bill would
grant it to induce agencies to run their programs based on HUDs
priorities  could change fundamental program rules behind closed
doors at any time.

Undermining real estate deals that use
vouchers to replace other types of subsidies. In recent years, many
public housing projects have been torn down or renovated and converted
to mixed-income housing, often with extensive involvement from
private-sector lenders and developers. In addition, many private
owners of buildings that received subsidies under various federal
housing programs have opted to terminate their participation in those
programs so they can raise rents to market levels. Frequently,
low-income households living in these buildings are issued tenant
protection vouchers to ensure that they will not be displaced or that
they are able to obtain affordable housing elsewhere.

The Administrations proposal would eliminate the assurance, provided
by the current federal standards, that tenant protection vouchers will
protect such families from sharp rent increases. State and local
housing agencies would be able to raise sharply the rents charged to
families with tenant protection vouchers, and in the face of likely
funding cuts, agencies would be under considerable pressure to do so.
If this occurred, opt-outs and public housing conversion projects
would be far more controversial politically than they are today. Some
such deals could unravel, and the laws that allow owners to opt-out of
subsidy contracts could come under renewed scrutiny.

Bill Would Grant HUD Sweeping Authority
to Waive Law

In addition to replacing the voucher program with a block
grant and eliminating the rent rules under the public housing program, the
Administrations proposal contains a provision that would grant the HUD
Secretary authority to provide state and local agencies waivers of virtually
any provision of the principal law (the U.S. Housing Act of 1937) that governs
the voucher and public housing programs. This authority goes far beyond the
limited authority traditionally granted federal agencies to waive program
rules and allow state or local agencies to experiment with policy variations.
It more closely resembles the superwaiver authority that the Administration
and some members of Congress have proposed to establish for public housing and
a number of other federal low-income programs.[12]

The proposed HUD
superwaiver authority is portrayed as an expansion of an existing
demonstration waiver program known as Moving-to-Work. In fact, it would not
be subject to several key constraints under which the Moving-to-Work
demonstration currently operates, including a requirement that housing
agencies serve approximately the same number of families as they would have
without the waiver and a limit of 32 on the number of agencies that can
participate. Certain categories of agencies, including all agencies
administering at least 500 public housing units or 500 vouchers, would
automatically be eligible to apply for waivers. Other agencies could apply if
they met criteria to be established by HUD. HUD would have such broad
discretion to set those criteria that it could, if it chose, grant waivers to
virtually any housing agency.

This provision would represent a major change in federal
housing policy whether or not Congress adopts the Administrations other
public housing and voucher proposals. If Congress enacted the
Moving-to-Work superwaiver provision but not the Flexible Voucher Program
and public housing rent proposals, HUD could use waivers as a back door means
to allow as many agencies as it wished to operate their programs under
essentially the same terms as those proposals. As a result, agencies would be
able to take the same kinds of adverse measures as they would under those
other proposals  such as sharply raising rent burdens on public housing
residents and households with vouchers, shifting voucher assistance to higher
income households, or restricting families ability to use vouchers to move
out of high-crime, high-unemployment areas.

Superwaiver authority also would allow HUD to go
substantially beyond the terms of the Flexible Voucher Program and
public housing rent proposals, if those other proposals were enacted.
Nearly all existing protections for public housing residents could be waived.
For example, HUD could eliminate rules that guarantee tenants the right to
have input into local agency policymaking and provide protection against
arbitrary evictions. It also could grant waivers eliminating the current
requirement that 40 percent of households admitted to public housing have
incomes below 30 percent of the area median income.[13]
HUD might even be able to waive some of the few federal standards that would
remain in the voucher program under its Flexible Voucher Program proposal,
including rules restricting housing agencies from using vouchers to support
construction of housing developments that isolate poor households from
households at other income levels. Such waivers also could allow agencies to
shift funds between the voucher program and public housing or to use voucher
and public housing funds for other housing-related purposes.

HUD could grant waivers with no input from Congress and no advance input
from the local community. As a result, the proposal would effectively allow
the laws governing housing assistance to be rewritten behind closed doors by
HUD and public housing agencies.

Many of the laws that HUD would be permitted to waive, such as rules on
income targeting, are the result of decisions made by Congress after extensive
debate among competing interests. HUD and local agencies would be permitted
to rewrite those laws with Congress having no role at all in the process.
Similarly, Congressional appropriators, who allocate funds separately each
year for housing subsidies and administrative fees within the voucher program,
and for capital and operating expenses in the public housing program, would
not be consulted about HUD decisions to permit housing agencies to shift money
across those four funding streams.

Shifts of Funds from Vouchers
to Public Housing Could Reverse Trend Toward Market-Based Housing Policy

It is likely that some housing agencies would seek
waivers allowing them to use funds appropriated by Congress for the voucher
program to pay for the upkeep of public housing projects. The funding
provided to local housing agencies for public housing has been cut repeatedly
in recent years, and some housing agencies receive funding levels that are too
low to enable them to manage their projects effectively. While the voucher
program was also shortfunded in fiscal year 2005 and could be cut further in
the future, many housing agencies may be reluctant to allow public housing
projects to fall into disrepair and may feel pressure to shift funds from
vouchers to public housing. A housing agency may believe it will be more
likely to be held accountable by the public for poor security, peeling paint,
or overgrown lawns at projects it owns and manages than for the higher rent
burdens and longer waiting lists that would result from voucher cuts.

If a large number of agencies requested and received
waivers allowing them to use funds appropriated for vouchers to support public
housing, this would constitute a reversal of a sea change that has occurred in
federal housing policy in recent decades. Since the 1970s, the federal
government has significantly expanded the housing voucher program while
providing little funding for construction of new public housing. This
reflected a belief among many housing experts that providing vouchers that
allowed households to choose to move out of high-poverty neighborhoods would
better promote self-sufficiency and other positive social outcomes than
concentrating large numbers of poor people in particular buildings, as many
public housing projects did. In addition, some believed that providing
housing through the private market would be more effective and efficient that
providing it through government-owned, government-managed public housing.

While the immediate effect of such shifts would be to
increase resources for public housing at the expense of vouchers, allowing
funds to be moved in this manner also likely would raise the chances that
funding for the two programs combined would fall. With housing agencies able
to transfer funds freely from the voucher program to public housing, it would
become more difficult for advocates and housing agencies to argue that
additional funds were needed to cover the costs of managing public housing.
The Administration and Congress would be able to point out that the total
funding an agency received for public housing and vouchers amounted to more
than enough to maintain the agencys housing projects and that it was up to
the agency to allocate those funds as it saw fit. Such funding shifts could
serve as a further rationale for the large cuts in housing assistance that the
Administration intends to seek in future years.

Targeted,
Research-Oriented Waivers Would Do a Better Job of Encouraging Useful
Innovation

Demonstration
programs that allow housing agencies to experiment with policy variations can
stimulate innovation and provide policy makers with useful information about
what policies are effective. The Moving-to-Work superwaiver authority
proposed by the Administration, however, is poorly designed to achieve this
goal.

The most
effective demonstration programs are limited to a small number of areas, since
their purpose is to test policy innovations at a relatively small scale rather
than to put untested changes into place broadly. In addition, the most useful
demonstrations have been accompanied by careful independent evaluations that
enable policy makers to determine whether an innovation has been effective and
whether it should be replicated. In the area of housing, two recent
demonstration programs, Jobs Plus and Moving-to-Opportunity, offer examples of
demonstrations that were conducted at a relatively small scale and rigorously
evaluated, and that consequently generated valuable findings.

The existing
Moving-to-Work demonstration, which is far more narrowly drawn than the new
Moving-to-Work superwaiver authority that the Administration is proposing,
allows several dozen housing agencies to test a range of housing policy
variations. Unfortunately, this demonstration was not accompanied by a
rigorous evaluation. As a result, it has generated a wealth of anecdotal
reports but few hard findings of the type produced by the Jobs Plus and
Moving-to-Opportunity demonstrations.[14]
Congress could contribute greatly to the amount of knowledge available
regarding housing policy  and to its own ability to make informed policy
decisions  if it continued Moving-to-Work at a similar or smaller scale but
provided for careful, controlled evaluations of the policies that agencies
experiment with. This step would be far more useful for purposes of
stimulating and learning from innovation than granting HUD sweeping
superwaiver authority.

Conclusion

The radical changes that the Administration is proposing
through its State and Local Housing Flexibility Act do not offer a sound
approach to improving the nations low-income housing assistance programs.

In the case of the housing voucher program in particular,
the Administration is proposing to tear down the framework of a program that
has built an impressive record of success. The bipartisan,
Congressionally-mandated Millennial Housing Commission described the voucher
program as flexible, cost-effective, and successful in its mission in its
2002 report, while a 2002 study by the General Accounting Office found the
program to be more cost-effective than other major federal housing programs.
A 2003 report by the Office of Management and Budget on the performance of HUD
programs stated that the voucher program demonstrates improved efficiencies
and cost effectiveness in achieving program goals each year and that
independent evaluations indicate that the program is effective and achieving
results. As recently as November 2004, HUDs Fiscal Year 2004 Performance
and Accountability Report found that the voucher program succeeded in meeting
eight of the nine performance goals that HUD had established since 2001.
Those goals covered such areas as expanding the use of vouchers to support
homeownership and encourage self-sufficiency, and reducing errors in subsidy
calculations.

It seems improbable that this record of success could be
maintained if the core characteristics of the voucher program  including the
targeting of assistance to the neediest families, federal standards regarding
rent burdens and subsidy caps, and the option to use vouchers to move to a
community with better job opportunities  were cast aside, as the
Administration has proposed.

Some aspects of the laws governing the voucher and public
housing programs could be improved. For example, the methods used to
distribute voucher funding to state and local housing agencies in fiscal years
2004 and 2005 provided too much funding to some housing agencies (causing the
excess to be recaptured by HUD, rescinded by Congress, and returned to the
federal Treasury after the end of the year) and too little to other agencies
(forcing those agencies to cut assistance to needy families to cover their
shortfalls). In addition, some aspects of the rules used to calculate rent
contributions for recipients of housing assistance are unnecessarily complex
and burdensome.

Congress could address these specific problems through
carefully considered, targeted reforms. But the Administration has instead
proposed that Congress abdicate its responsibility for ensuring that the funds
it provides for the housing voucher and public housing programs are used to
provide effective housing assistance, and that Congress essentially cede
authority over those programs to HUD and state and local housing agencies.
This approach can be expected to have highly adverse consequences on the
housing assistance programs and the more than three million low-income
families that they serve.

End Notes:

[1] The Administrations proposal was
first introduced as S. 711 by Senator Wayne Allard (R-CO) on April 13, 2005.
Representative Gary Miller (R-CA) introduced a similar bill as H.R. 1999 in
the House on April 28, 2005.

[2] The $2.9 billion figure is based on
a funding need estimate that does not include any tenant protection vouchers
issued after 2005. HUD estimates indicate, however, that well over 100,000
such vouchers could be needed to aid low-income households that are losing
other forms of federal housing assistance. The figure also assumes that no
unspent prior-year funds will be available to help fund the voucher program in
2010. (The Administration is assuming that $2.5 billion in 2006 funding for
the voucher program and the separate Section 8 project-based housing
assistance program will be drawn from unspent appropriations from 2005 and
previous years, but OMB documents released in 2004 indicated that prior-year
Section 8 funds will be exhausted by 2008.) For additional information on the
methods used to calculate these estimates, see The Basis for the Estimate
That the Budget Would Support 370,000 Fewer Vouchers in 2010, CBPP, February,
2005, available on the internet at
/archiveSite/2-18-05hous-app.htm.

[3] See appendix for detailed
information on these and other aspects of the Administrations proposals.

[5] Vouchers can currently be used to
help homeowners cover mortgage payments, but only a small percentage of
vouchers are actually are used for this purpose. By contrast, close to half
of the families assisted in recent years through HOME funds are homeowners.
One reason that relatively few vouchers are now used for homeownership is that
many households with incomes below 30 percent of the local area median income
have difficulty affording the costs of homeownership (and maintaining the
steady income that is required to consistently make mortgage payments) even
with a voucher. It is likely that the higher income targeting levels that the
Administration is proposing would result in broader use of vouchers for
homeownership. As result, the types of assistance provided through the
voucher program would likely come to resemble more closely those provided
through the HOME program.

[6] The 30-percent-of-income cap on
rents also applies to the separate project-based Section 8 program and several
smaller federal housing programs. The Administrations proposal would not
remove the cap for those programs.

[7] The funding provided by the federal
government to local housing agencies for public housing has been cut each year
since 2001, and the Administration has proposed further cuts in 2006, so
housing agencies would immediately face financial pressure to raise rent
burdens on public housing tenants. This pressure could grow even more intense
if the large cuts in housing assistance contained in the Administrations
budget planning documents for years after 2006 are carried out.

[8] Interstate regions would be defined
by housing agencies, but would require approval from HUD.

[9] Such actions would be prohibited by
fair housing laws only if the action could be proven to be racially motivated.

[10] Office of Policy Development and
Research, U.S. Department of Housing and Urban Development, Trends in Worst
Case Needs for Housing, 1978- 1999, December 2003, Tables A-6a and A-7a. In
these data, a household is considered to have a housing problem if its rent
burden is more than 30 percent of income or if it occupies a unit that is
substandard or overcrowded.

[13] The bills would permit HUD to
allow agencies with waivers to use the same income targeting rules as those
the Administration is proposing for the Flexible Voucher Program: 90 percent
of new participants must have incomes below 60 percent of area median.

[14] HUD contracted with the Urban
Institute to conduct an evaluation of Moving to Work, but the evaluators noted
in a 2004 report that MTW was not designed as a rigorous research
demonstration with clearly defined changes to be evaluated or a set of
controls for the comparison of outcomes, and that this and other factors
limited the amount that could be learned from the demonstration. Martin D.
Abravenal et al, Housing Agency Responses to Federal Deregulations: An
Assessment of HUDs Moving to Work Demonstration, Urban Institute, January
2004.